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‘Volatility, not stability, the new norm’

The age of stability and predictability is history. Now economic managers are struggling to come to grips with the key triggers that sway markets without prior warnings.

Governments are engaged in the over-arching business of firefighting, focused on stubborn structural deficits and praying for Mother Nature’s mercy which is not so easily forthcoming in good measure.

But the the world moves on; time and tide wait for no one with policymakers trailing behind the march of events, as if dethroned from their position of leadership.

The world financial crisis, commodity bubble, oil price dip, slowdown in China all took the world by surprise. The policymakers and experts at the ADB annual meeting in Frankfurt were confronted by participants for their comments on such issues like market volatility and the lack of foresight.

Many pretended not to understand the most pertinent question. Some wished it away with just smiles. A few, however, accepted that in this interdependent world no state is completely insulated from happenings beyond its boarders and control. To deal with what a central bank governor referred to ‘a bolt from the blue’, nations are compelled to be actively involved in regional and multilateral fora for an informed and coordinated response for unprecedented, common challenges.

Earlier such issues were addressed fleetingly by ADB President Takehiko Nakao during a panel discussion in the course of four- day marathon meetings. Responding to a question by this writer at the closing press conference in Frankfurt the ADB chief clarified that his remarks were in response to the rumours surrounding Fed’s decision about interest rate and its likely impact on the currency markets around the globe.

“We have seen how Bernanke remarks in 2013 rattled the currency markets as far away from US as India but after some time dust settled down. I think the best way to deal with external shocks is to strengthen internal economy though structural reforms and closing infrastructure gaps and working on removing disparities to make development inclusive and sustainable”, said.

A senior expert with a keen eye on India informed that Indian rupee did not settle by itself in 2013. “The Indian government threw dollars in the market to calm nerves and the government’s operation cost was close to $2bn”, he said but declined to own the information.

Responding to another question from Dawn President Nakao advised Pakistan’s government to reduce dependence on borrowings from commercial banks as it limits the scope of the private sector. “It is the responsibility of the government to improve the ease of doing business by encouraging banks to lend to credit- starved sectors with high potential of growth, particularly SMEs”, he advised.

“For closing recourse gap it needs to work on making tax regime effective and identify other less disruptive options of raising money in the interim period”, he said.

`Indian Finance Minister Arjun Jately during a discussion in one the panel meetings dismissed the possibility of shielding an economy perfectly from impact of exogenous factors. “What do you do ii global demand falls, if currency market fluctuates. Smart policies help but it is practically impossible to be ready for every eventuality. So yes volatility and not stability is new normal”, he remarked.

Finance MinisterIshaq Dar found time for a brief interview with Dawn while extremely busy in dashing in and out of bilateral meetings with his counterparts who converged in Frankfurt for the annual event. He repeated his government’s achievements in containing inflation, controlling deficit, increasing social spending and achieving growth. He mentioned that Japanese investment agency has rated Pakistan as the second most attractive country for FDI in Asia.

He agreed with the ADB perception that the best defence to ward off or rather minimise the spillover effects of external shocks is to remove structural weaknesses of an economy by strengthening its foundation.

In this context , he talked about the value of political stability and continuity of economic policies. “The sense of fear and uncertainty scares investors away. It is unfortunate that some elements in Pakistan play into the hands of forces that are regressive and wish to see Pakistan weak and economically dependent”, he said.

“We need to decouple politics from economy. I have invited all political parties to adopt a common minimum economic programme to address fears of investors and ensure continuity of economic policies in the country”, he said.

“The country has proven high growth potential and people deserve a better life. I am confident that if political parties agree to cooperate on development agenda of sustainable growth the economy of Pakistan has depth and resilience to face global headwinds”, Dar stressed.

“The chain of key economic events over the past decade in particular changed the focus of policymakers from projecting future as their energies are consumed in interpreting disruptive events and strategising things to deal with their consequences”, a ADB expert, who was not authorised to record comment, told this writer.

The writer is in Frankfurt for ADB’s annual meeting.